Market Overview

Apple Has iPads Removed From Stores in Chinese Cities and Faces Export Ban

Chinese authorities have reportedly removed Apple (NASDAQ: AAPL) iPads from store shelves at several retail outlets in some Chinese cities in response to a Chinese court's ruling that says Apple does not own the rights to the iPad name in China.

The trademark dispute between Apple and a Chinese company called Proview Technology has escalated to the point that the Apple iPad could soon be removed from store shelves across China. Even more serious is the possibility that Chinese courts could rule that Apple does not have the right to export from China any products labeled with the iPad name. Because Apple manufactures its wildly successful iPads in China, any disruption to its ability to manufacture and export the product from China, even a temporary one, could be costly.

According to China Daily, Proview Technology's Taiwanese affiliate Proview Taipei registered the iPad trademark in several countries in 2000 and Proview Shenzhen registered the iPad trademark for use in mainland China a year later. Although Apple (AAPL) bought Proview Taipei 's international rights to the iPad name, Proview Shenzhen says that it still owns the rights to use of the iPad name in China.

A Chinese court in the city of Shenzhen sided with Proview Shenzhen in December of last year. Emboldened by the Shenzhen court's decision, the Chinese company moved to prevent Apple from selling iPads anywhere in China and has filed suits against Apple in a number of Chinese cities.

The irony of the situation is that a Chinese company is using trademark rules that were enacted as a result of lobbying from Western companies against one of the very Western companies that hoped that such rules would protect its business interests in China.

While Apple is in the news lately for having its stock price push past $500, the situation in China could hurt Apple's stock price if the company doesn't act quickly to settle the dispute. While Apple might be hopeful that high level Chinese authorities will intervene on its behalf, its questionable whether the Shenzen court would have sided with Proview or that Chinese officials would begin to remove Apple products from store shelves if they thought that it would make Chinese leaders unhappy.

For its part, Proview Shenzhen is said to be heavily indebted and is rumored to be seeking a quick payout from Apple. If Apple doesn't put this situation behind it soon, Apple's stock price could start to move lower.


ACTION ITEMS:

Bullish:
Traders who believe that Apple will resolve this dispute quickly might want to consider the following trade:
  • Buy Apple. Even if Apple is forced to pay a steep price to end its legal troubles in China, it would hardly make a dent in the company's massive cash position.
Bearish:
Traders who believe that Apple's trademark dispute in China could linger may consider an alternative position:
  • Short Apple. Although there hasn't been much money in shorting Apple over the past decade, Google (NASDAQ: GOOG) has already proven how costly it can be for an American tech company to get involved in a dispute with the Chinese.
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